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Taxation on hive-up and subsequent winding up

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Hi all

My client, Mr A, owned a trading company 100%, Company A. He also owned Company B 50% with one other shareholder. 

Company A has purchased the 50% shares in company B from the other shareholder. We now have a structure where Co. A holds 50% of the shares in Co B, with the other 50% owned by Mr A. 

Mr A wants to transfer the trade and assets of Co B up to Co A and get rid of Co B. 

What is the tax treatment here? They are not an official group as it is less than a 50% subsidiary, so there will be no tax neutral transfer of assets between the group. Is there any way of doing this tax efficiently?

Any help appreciated. 



Replies (3)

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By gbuckell
25th Feb 2019 10:41

Co A acquires Mr A's shares in co B in exchange for an issue of new shares in co A. Subject to tax clearance (which should be forthcoming but remember to mention the planned hive up), tax-free transaction and you now have the desired group to allow a tax-free hive up.

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Replying to gbuckell:
By Tax Conundrum
11th Mar 2019 11:47

Thank you gbuckell, apologies I hadn't seen a notification that I had any responses!

Thankfully, this is what I suggested to the client. The problem we have though is that if we strike off Co B, Co A will be subject to a degrouping charge. The client isn't keen on the idea of keeping Co B dormant, but I think this is the only option to allow a tax-free hive up with no degrouping charges.

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Replying to Tax Conundrum:
By gbuckell
11th Mar 2019 12:21

A degrouping charge should not apply if co B is struck off. It has been suggested that co A "leaves" the group in this situation because there is no longer a group. HMRC told the ICAEW a number of years ago that this is not their view. But you will probably find that different tax counsel have different views on this one! Obviously, if you want to play safe, keeping co B as a dormant subsidiary is one way. Another way is to create a new dormant subsidiary before striking off co B. Whether this is a better solution depends on the reasons for wanting to be rid of co B.

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